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The Challenges of Running Responsible Supply Chains

Rescuers carry a survivor pulled from the rubble of a building that collapsed near Dhaka, Bangladesh, in May 2013, killing more than 1,000 people. The disaster led to several international agreements intended to protect workers and make factories safer.Credit Rahul Talukder/Associated Press

Bangladesh is the poster child for the global apparel industry. It is the world’s second-largest exporter of clothing after China. Its factories employ four million workers, supplying retail giants like Benetton, Walmart, J.C. Penney and H&M. About 90 percent of these workers are women, and they earn wages that are among the lowest in the developing world. Yet for them, a job in the garment industry is often the only job available and a possible step out of grinding poverty. Apparel wages in many countries, including Bangladesh, are often higher than wages in alternative employment.

At a dreadful human cost, the Rana Plaza tragedy has led to some beneficial changes. To protect their brands and reputations, American and European corporations have scrambled to reduce the risks of similar calamities. Several big European companies have signed an Accord on Fire and Building Safety in Bangladesh, which includes binding commitments and financial obligations to make factories safer and submit them to independent inspectors. Major retailers in the United States have signed a similar but less-ambitious agreement known as the Alliance for Bangladesh Worker Safety.

Both groups have cooperated to establish a fire safety and structural integrity standard for the factories with which they do business. American companies have committed to completing inspections at more than 700 factories to assess their compliance with the new standard by the middle of this year. This will be a formidable task. There is a shortage of trained inspectors in Bangladesh, and at the end of January only about 30 percent of the required inspections were done.
In response to strikes and protests in the wake of the Rana tragedy, a special board appointed by the Bangladesh government called for a 77 percent increase in the minimum wage – to about $68 a month – to take effect this year. The increase was initially opposed by most factory owners on the grounds of competitiveness but is likely to be approved by the prime minister, Sheikh Hasina, who is facing a tough election. Even with the increase, the wages paid to garment workers in Bangladesh will remain among the lowest in the world.

Bangladesh, however, is just one link in the global supply chain. As a result of globalization, almost every item bought by consumers in developed countries is produced at least in part by low-wage workers in developing countries. While it’s true that these jobs have lifted many individuals out of grueling poverty, it’s also true that many of them work in conditions that violate acceptable standards in the United States and other developed countries.

Moreover, the maze of subcontractors and sub-subcontractors in global supply chains makes it easy for multinational buyers to keep a legal and reputational distance from unsavory local realities. Local governments, eager for business, often abet the cover-ups. And corruption is a recurrent problem that can mislead even the most sophisticated global companies.

The Rana Plaza tragedy could have been avoided if the politically connected owner of the building had not been allowed to construct two additional floors and if the warnings by a safety inspector to the government days before the tragedy had been heeded. Bangladesh suffers from a high level of government corruption as measured by Transparency International, a global anti-corruption watchdog.

None of this is new. Nike was widely criticized in the 1990s after accusations of forced labor at its athletic-shoe suppliers in Mexico and Asia. Apple is still recovering from accusations about inhumane working conditions at the factories producing iPhones and iPads in China. In the garment industry, reform groups have warned for years about workplace dangers. The Clean Clothes Campaign began promoting a code of conduct back in 1998.

Yet here we are in 2014, and the disasters are still happening. So what to do?

The good news is that there is broad agreement – in principle – on acceptable standards for workplace safety and worker rights. Look at any number of voluntary industry codes of conduct, and you’ll see that they condemn child labor, forced labor, discrimination, sexual abuse and dangerous work sites.

But there are major weaknesses in monitoring and enforcement of agreed-upon standards in developing countries that lack the resources for effective enforcement programs.

Self-regulation and voluntary codes of conduct by large multinational companies are essential, but they aren’t enough to eliminate abusive labor practices. Even when multinational buyers use their bargaining power to push suppliers to maintain high standards of safety and fair treatment, they deal directly only with first-tier and possibly second-tier suppliers. The complete supply chain is much bigger than that.

Sustained progress to improve working conditions in global supply chains requires engagement on all fronts: by multinational buyers, national governments, local factory owners, labor, consumers and international organizations. Better Work, a joint venture of the International Labor Organization and the International Finance Corporation, is an example of what is needed.

Better Work provides public factory-level assessments of garment industry conditions in eight nations, including Cambodia, Indonesia, Nicaragua and Haiti. It has just initiated a program for Bangladesh. Each Better Work program is a voluntary partnership with the national government, employers, workers and international buyers.

Better Work visits factories that consent to participate on an unannounced basis and measures a wide range of practices, from workplace safety to child labor, forced overtime and collective-bargaining rights compared with national and international standards. It then produces industrywide reports for each country, including lists of the factories that consented to inspections. Better Work complements its monitoring and reporting activities with remediation and training for local factories and their workers.

Although Better Work lacks enforcement power to demand specific changes, its reports provide accurate and credible information that encourages compliance by factory owners, local government officials and multinational buyers. Major global retailers run the risk of harming their brand and alienating their consumers if they purchase from factories that don’t open their doors to Better Work inspections.

Reputational risk has been found to play a critical role in improving compliance. And even though Better Work reports include only some of a nation’s factories – presumably the ones with better practices – they provide valuable fodder to labor and consumer advocacy groups to pressure local governments and corporate buyers to improve working conditions.

Better Work also provides a lesson about United States trade agreements as leverage for raising labor standards in developing countries. The 1999 U.S.-Cambodia Bilateral Textile Agreement promised Cambodia better access to American markets in exchange for improved working conditions in the garment industry.

Better Factories Cambodia was established by the I.L.O. in conjunction with the Cambodian government, factories, labor and international buyers to monitor these conditions, and the United States relied on its findings to determine Cambodia’s apparel quota allocation to American markets. Research indicates that the Better Factories Cambodia program has fostered lasting benefits in labor standards, wages, exports and productivity in the Cambodian garment industry. Subsequent Better Work programs in other countries are based on the Better Factories Cambodia model.

This is worth remembering as President Obama seeks congressional support for fast-track approval for the Trans-Pacific Partnership, a trade agreement that includes many developing countries with low wages and poor working conditions. Some Democratic critics see this and other trade agreements as a race to the bottom for wages and working conditions for American workers. But the Cambodian deal illustrates how trade agreements can help raise labor standards abroad rather than lowering them at home.

Most global multinational companies are committed to running “responsible and sustainable” supply chains. But they can’t do it alone. As the Better Work programs demonstrate, improving working conditions in developing countries requires transparency and compliance by local governments working in partnership with local factories, local workers and international organizations.

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